This is really an odd situation, said Jim Carter, general manager of Highland Publishing Company. We get most of the jobs we bid on that require a lot of press time in the Printing Department, yet profits on those jobs are never as high as they ought to be. On the other hand, we lose most of the jobs we bid on that require a lot of time in the Binding Department. I would be inclined to think that the problem is with our overhead rates, but were already computing separate overhead rates for each department. So what else could be wrong? Highland Publishing Company is a large organization that offers a variety of printing and binding work. The Printing and Binding departments are supported by three service departments. The costs of these service departments are allocated to other departments in the order listed below. The Personnel cost is allocated based on number of employees. The Custodial Services cost is allocated based on square feet of space occupied and the Maintenance cost is allocated based on machine-hours. Department Total Labor-Hours Square Feet of Space Occupied Number of Employees Machine-Hours Direct Labor-Hours Personnel 16,600 13,000 27 Custodial Services 8,100 3,600 47 Maintenance 15,000 11,000 65 Printing 30,900 40,600 108 167,000 13,000 Binding 107,000 20,700 305 46,000 74,000 177,600 88,900 552 213,000 87,000 Budgeted overhead costs in each department for the current year are shown below: Personnel $ 320,000 Custodial Services 65,700 Maintenance 93,300 Printing 414,000 Binding 170,000 Total budgeted cost $ 1,063,000 Because of its simplicity, the company has always used the direct method to allocate service department costs to the two operating departments. Required: 1. Using the step-down method, allocate the service department costs to the consuming departments. Then compute predetermined overhead rates in the two operating departments. Use machine-hours as the allocation base in the Printing Department and direct labor-hours as the allocation base in the Binding Department. 2. Repeat (1) above, this time using the direct method. Again compute predetermined overhead rates in the Printing and Binding departments. 3. Assume that during the current year the company bids on a job that requires machine and labor time as follows: Machine-Hours Direct Labor-Hours Printing Department 2,300 1,500 Binding Department 400 13,400 Total hours 2,700 14,900 a. Determine the amount of overhead cost that would be assigned to the job if the company used the overhead rates developed in (1) above. Then determine the amount of overhead cost that would be assigned to the job if the company used the overhead rates developed in (2) above.

Could you please post an explanation of this problems with the accompanying correct answers?